The price of paying off the debt you hate most

When and how to repay by emotion

Let's face it, there is debt and there is debt you loathe. Sometimes choosing to pay off the most hated balance first -- even when it's not costing as much as other obligations -- can bring much needed emotional relief.

Does it make sense, though? Concentrating on the most expensive account before others saves money, but exorcising debt demons can be logical, too.

Not all debt types carry the same psychological weight. Some bills can feel more urgent when linked to particularly unpleasant events, such as medical procedures, divorce, fraud or betrayal.

For example, when Steve Replin, a Denver-based attorney, wrote a book, he hired a public relations professional who turned out to be nothing more than a money trap.

"When the bill got to $25,000, which is the balance that I've now got on my credit card, I couldn't take it anymore and just fired her," says Replin. "I'm exceedingly angry, mostly at myself, for being such a gullible person and believing in what was said. So each month, when I make the payment on this account, I see this person in front of me and visualize the same thing coming around to her."

Shareef Defrawi, a project manager from Houston, is also dealing with an unjust debt, and it makes him cringe each time he thinks of it. Defrawi rented a car for a friend, who never returned the vehicle. "He literally skipped town. I fought the matter long and hard, but to no avail. I got stuck with a $16,000 public collection on my credit report and a $4,000 charge-off from my bank." Though the balance is small compared to his other loans, it takes precedence. "It carries a lot of baggage -- feelings of regret, stupidity, embarrassment, gullibility and the like. When the debt is finally paid off, I really think I'll get the closure I need as I'll be able to put the whole episode behind me for good."

The $4.78 a day of interest feels like it's coming straight out of my veins. I fantasize about the day when that balance is gone. I feel like I'm married to the mob. Concrete shoes and all.

-- Todd Havens Marketing director

Student loans are common sources of frustration because of their fixed rates and long payment schedule. "I hate my Sallie Mae student loan debt of $22,000," says Todd Havens, a marketing director from Los Angeles. It's not the people who work there, he assures, but "the company itself certainly qualifies for one of Dante's fiery inner rings." His anger stems from the loan's locked-in interest rates of 8 percent. "The $4.78 a day of interest feels like it's coming straight out of my veins. I fantasize about the day when that balance is gone. I feel like I'm married to the mob. Concrete shoes and all."

All this anger can shift a debt's priority.

Prioritizing debt repayment by emotionPayment order isn't an issue when consumers have only one debt, but when they have numerous types, experts find that people often sort them in similar ways. Patsy Marine, a Taduch, Ky.-based credit counselor for Clearpoint Counseling Service, says her cash-pressed clients tend to feel more inclined to repay money owed to relatives, while home loan arrearage takes a back seat. Why? "For mortgages, they know help is out there, but family members are more important," says Marine.

Indianapolis-based blogger Adam Baker from Manvsdebt.com agrees with Marine's observations, reporting that individuals tend to rank loans from family or friends most highly, then credit cards. Car or house debts are last unless there is negative emotion attached to them.

Conversely, some obligations plummet in the payoff lineup if the creditor is considered mean or difficult. "Through the years, I've heard from counselors that people often put the bill from the collectors who have treated them the worst at the bottom of the list," says Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling.

All ways to pay are valid, says Baker, though he does believe that by ridding the most disliked accounts first, "you'll be building momentum." He calls this method the "debt tsunami," and it's pretty simple: "Just list out every debt and then pay them off by which has the most emotional impact on you." He claims it makes sense for most people, especially for "any personality type where emotions have an effect on your motivations."

Baker and his wife used the debt tsunami to repay over $18,000 in consumer debt and have begun applying it to their student loans. "By really becoming intimate with the source of your debts, you can work to pay off the one that really drives you nuts first."

By really becoming intimate with the source of your debts, you can work to pay off the one that really drives you nuts first.

-- Adam Baker Manvsdebt.com

Personal finance author and radio personality Dave Ramsey's "snowball plan" is a popular repayment process (over 1 million families have so far attended his Financial Peace University course, where the plan is taught) that also takes psychology into consideration. With this technique, debtors position accounts by balance amount, and then pay the smallest debts first while making minimum payments to the others. He urges people to be unconcerned with interest rates or terms unless two accounts have similar payoffs, in which case the one with the higher interest rate takes the lead. Ramsey contends that consumers enjoy swift satisfaction when little debts drop off, and thus they are more likely to stay with the plan.

Matthew Russell, a financial planner for MTR Financial Services in Kingwood, Texas, is an advocate of Ramsey's approach and uses it in his practice. "To me, that is the right way of paying off debt. The emotional boost received by the client when they pay that first card off and can scratch it off their list is worth far more than spending more time paying off debt using the 'highest interest rate to lowest' approach. I think all of my clients, or those whom I've helped on a pro bono basis, will agree it was a better way to pay down their debt."

Still, even with strong reactions to certain debts, it's important to prioritize according to what can happen if you don't pay, and put essential needs first. "You have to keep the roof over your head and the car payment going so you can get to work," says Marine. "Don't always give in to your emotions!"

Combining logic with emotionStraight mathematics supports paying accounts down in order of most to least expensive, but it's possible to merge methods. You may want to concentrate on the creditor that's most bothersome, and then transition into a more common sense alignment of organizing your debt payoff plan according to interest rates.

Sentiment doesn't always translate into an illogical order of repayment. Sometimes a strong negative response to a debt leads to a financially logical arrangement. For example, Edward van Eckert, a marketing executive from Metuchen, N.J., says, "my experience is that the credit companies I hate are those charging the highest rates, so emotions and practicality meet."

Scott Crawford, CEO of DebtGoal, an online debt acceleration program, says his company started out emphasizing the financial advantage of whittling down balances with an algorithm that calculates the fastest way to pay down debt. He found, however, that many borrowers prefer to work on their debt emotionally as well. Therefore, DebtGoal's calculator allows people to select a strictly mathematical method or switch accounts around according to personal preference.

So if the hatred you feel for a debt is keeping you up at night, feel free to attack it with abandon. It may not be costing you more than others financially, but sleep and peace are precious commodities too. In the end, says Crawford, any repayment approach can be effective, but "what really matters is staying motivated and seeing progress. Just find and plan and stick with it."

Published: May 12, 2010

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